Regional District Directors will be approving 2014 water rates at their meeting tomorrow (see Agenda, pages 31-32).
RDNO staff developed a curious, complicated system to determine water rates as depicted below.
RDNO staff developed a curious, complicated system to determine water rates as depicted below.
This is supposed to be a user pay system but it really is not. Note that the total revenue required is $18,600,000. Agriculture water rates contribute $904,452.00. Other revenues contribute $600,000. The remaining revenue of $17,095,548 must be contributed by domestic, industrial, commercial and institutional (ICI) customers. Total number of customers: 24,000. GVW estimates total water sales of 5,373,250 cubic meters.
Based on the figures presented above the cost to produce 1 cubic meter (m3) of water is $17,095,548 divided by 5,373,250 which is about $3.182 per m3. So any customer who pays less than that is being subsidized by someone else.
Since it is obvious that everyone should pitch in a nominal amount to maintain the system we must provide a base fee. However, this fee should have some connection to the unit cost of water otherwise it is arbitrary and depends on the whims of bureaucrats what that fee should be. The proposed base fee of $99.80 has no realistic base. An empty lot must contribute nearly $400 without ever using a drop of water. The various tiers have no logical basis for their fees either. Even the highest tier “E” is far from the real cost of water ($3.19) and therefore it is ineffective in controlling usage. It only allows high volume users to be subsidized by low volume users.
An alternative would be to use a reasonable base fee that everyone should contribute. In fact, an average user uses about 5 m3 of water monthly or 15 m3 quarterly. We could increase this volume to 20 m3 like the City of Vernon is doing with sewage. However, they are only doing that because sewage cannot be measured accurately (at this time, although dual meters to measure indoors and outdoors could rectify this problem) so they build in a margin of error at 20 m3.
Assuming we select 20 m3 as the base any customer who uses 20 m3 per quarter would be charged $63.80. Any additional m3 would be charged at $3.19. This system is the least unfair to low users and totally fair to everyone else.
Try it! Compare rates proposed by GVW to the proposal presented here. Remember, your usage is 20 m3 or less in any quarter your bill is $63.80. If your usage is more multiply the volume by $3.19 (i.e. 35 m3 X 3.19=$111.65 as compared to GVW’s $133.30). Once quarterly consumption reaches 50 m3 the proposed rate will increase consumption costs but it will always be the actual cost of the water used.
Arguments against the real user pay system include the fear that it would hit ICI customers too hard. In fact, they would just start paying the cost of their water. It would be unfair to customers with agricultural allocation but no agricultural production but that could be eliminated by total separation and ensuring that all customers with allocation will get their untreated water at agricultural rates.
Other arguments are based on fear that these rates might discourage customers from using more water. Was not the tier based system supposed to encourage that? In fact it did and as a consequence we have been short of revenues to the tune of over $3 million in the last three years. Yet we persist with the same failing method of revenue calculations.
If the current system anticipates a usage shortfall of 5%, all we have to do is multiply the originally expected volume usage by 0.95 and all the other figures fall into place as shown by the next figure.
Based on the figures presented above the cost to produce 1 cubic meter (m3) of water is $17,095,548 divided by 5,373,250 which is about $3.182 per m3. So any customer who pays less than that is being subsidized by someone else.
Since it is obvious that everyone should pitch in a nominal amount to maintain the system we must provide a base fee. However, this fee should have some connection to the unit cost of water otherwise it is arbitrary and depends on the whims of bureaucrats what that fee should be. The proposed base fee of $99.80 has no realistic base. An empty lot must contribute nearly $400 without ever using a drop of water. The various tiers have no logical basis for their fees either. Even the highest tier “E” is far from the real cost of water ($3.19) and therefore it is ineffective in controlling usage. It only allows high volume users to be subsidized by low volume users.
An alternative would be to use a reasonable base fee that everyone should contribute. In fact, an average user uses about 5 m3 of water monthly or 15 m3 quarterly. We could increase this volume to 20 m3 like the City of Vernon is doing with sewage. However, they are only doing that because sewage cannot be measured accurately (at this time, although dual meters to measure indoors and outdoors could rectify this problem) so they build in a margin of error at 20 m3.
Assuming we select 20 m3 as the base any customer who uses 20 m3 per quarter would be charged $63.80. Any additional m3 would be charged at $3.19. This system is the least unfair to low users and totally fair to everyone else.
Try it! Compare rates proposed by GVW to the proposal presented here. Remember, your usage is 20 m3 or less in any quarter your bill is $63.80. If your usage is more multiply the volume by $3.19 (i.e. 35 m3 X 3.19=$111.65 as compared to GVW’s $133.30). Once quarterly consumption reaches 50 m3 the proposed rate will increase consumption costs but it will always be the actual cost of the water used.
Arguments against the real user pay system include the fear that it would hit ICI customers too hard. In fact, they would just start paying the cost of their water. It would be unfair to customers with agricultural allocation but no agricultural production but that could be eliminated by total separation and ensuring that all customers with allocation will get their untreated water at agricultural rates.
Other arguments are based on fear that these rates might discourage customers from using more water. Was not the tier based system supposed to encourage that? In fact it did and as a consequence we have been short of revenues to the tune of over $3 million in the last three years. Yet we persist with the same failing method of revenue calculations.
If the current system anticipates a usage shortfall of 5%, all we have to do is multiply the originally expected volume usage by 0.95 and all the other figures fall into place as shown by the next figure.
Note that the unit cost increased to $3.24 and the base fee increased to $64.73.
At a 10% consumption decrease the values would change to $3.54 and the base fee would increase to $70.70 still below the current GVW proposal.
If the GVW model anticipated similar decreases in usage a whole sale change in values would have to take place and, as usual, the flat fee would go through the roof.
Comments are invited.
****************************************************************************
No comments:
Post a Comment